Should the GOP Go Over the Cliff?

Embrace the sequester, but not tax hikes.

Were the average Republican asked for a succinct statement of his views on taxation, he or she might respond thus:

“U.S. tax rates are too high for the world we must compete in. The tax burden–federal, state, local, together–is too heavy. We need to cut tax rates to free up our private and productive sector and pull this economy out of the ditch.”

This core conviction holds the party together.

Yet today the leadership is about to abandon this conviction to sign on to higher tax rates or revenues, while the economy is nearing stall speed. Yet, two years ago, President Obama himself extended the Bush tax cuts because, he said, you do not raise taxes in a recovering economy.

Why are Republicans negotiating this capitulation?

Because they have been warned that if they do not sign on to a tax hike, they will take us all over a fiscal cliff.

If we go over, Republicans are being told, you will be responsible for tax hikes on all Americans as the Bush tax cuts expire on Jan. 1.

You will be responsible for a surge in tax rates on dividends, interest, capital gains, estates.

You will be responsible for an automatic sequester catastrophic to the national defense.

This is the pistol Obama is pointing at the GOP. This is extortion.

Republicans are being told that they either vote for something they believe to be wrong and ruinous–or get something worse. Pay the ransom, fellas, Obama is demanding, or take the blame for a second recession.

Like the Panama Canal debate that made Ronald Reagan a hero, this is a defining moment. No GOP senator who agreed to the Carter-Torrijos treaty ever made it onto a national ticket.

What are the perils for Republicans who sign on to an Obama deal?

They will sever themselves permanently from much of the base of the party. While their votes may ensure that tax rates or revenues rise, they will have no assurance that the promised spending cuts will ever be made. Even Reagan fell victim to this bait-and-switch.

Then, if the tax hikes slow the economy, Republican collaborators will share the blame. Not only will they have gone back on their word, they will have damaged the recovery. What would be their argument for re-election?

If you believe higher tax rates or tax revenues would be like poisoning an already weak economy, why would you collaborate in administering that poison? Why not just say no?

Having lost the presidency and seats in both houses, Republicans should not partner with a president with whom they disagree on principle.

They should act as the loyal opposition in a parliamentary system whose duty it is to oppose, to offer an alternative agenda and to wait upon the success or failure of the government, as Labor is doing in Britain and the conservatives are doing in France.

What should Speaker John Boehner do?

Tell the president politely that America’s problem is not that we are taxed too little but that we spend too much–and the GOP will not sign on either to tax rate or tax revenue increases. For Republicans believe that would further injure the economy–especially an economy limping along at between 1 and 2 percent growth.

Then Boehner should depart the White House, go back up to the Hill and urge his Republican caucus to do two things. Pass an extension of the Social Security payroll tax cut and block its automatic rise from 4.2 percent of wages to 6.2 percent. To raise that tax now and scoop off the discretionary income of most of America’s families in this anemic economy makes no sense economically or politically.

The House should then vote to extend the Bush tax cuts for another year, with a pledge to do tax reform–lowering tax rates in return for culling, cutting or capping deductions for the well-to-do in the new year.

Then let Harry Reid work his will. If the Senate votes to let Social Security taxes rise, let Harry and his party explain this to the middle class that gets hammered in January. If the Senate votes to let the Bush tax cuts lapse for those over $200,000, decide in the caucus whether to negotiate–or to go home for Christmas and New Year’s.

As for the automatic sequester that would impose $100 billion in cuts next year, half in defense, do nothing. Let it take effect. The budget has to be cut, and while these cuts are heavy on defense, the depth and mixture can be adjusted in the new year.

If Republicans walk away from tax negotiations with the White House, market investors, anticipating a sharp rise in tax rates on dividends, interest and capital gains next year, will start dumping stocks, bonds and investments to take advantage of the last year of lower taxes.

MORE IN POLITICS

Hide 31 comments

31 Responses to Should the GOP Go Over the Cliff?

Now I see why sequestration was made. It’s the only way any sort of cut is done. Pity that’s a horrible way to manage a budget but meh..

Makes me wonder though of this situation:

The proposal above happens, including letting sequestration occur. Dems agree to the SS extension, of course, but decide to do a similar ‘all or nothing’: expire the upper or expire it all.

Then both sides go home and we get Sequestration and tax policy put back to pre-bush levels. Add in us leaving Afgan and, if you squint, it’ll be almost like W never happened.

I’d deem the whole lot of congress, dems and reps, fools who shouldn’t go near an accounting spreadsheet though that just means making no change of heart there). Sadly, it might be the best option we have to balance things in a method that spreads pain to everyone.

A lot of pain…well spread out.

Don’t think putting the blame on Dems would work here, though, since both the original agreement and this stalemate have Rep and Dem ink all over it. Left-for-life will blame Reps, Right-for-life will blame Dems, middle of the road, and a few (left/right)-of-center will call everyone fools.

Then the combination of ending the tax holiday, the wars, and the cuts might get us within striking distance of balancing the budget…after we gut congress top to bottom and get folks who know how to bargain for a car without getting a lemon or going home on foot (on principle!) and yes that goes for both sides of the fence.

Market and economy will get slammed, but perhaps it’ll get folks to finally give up on Bubble recoveries and just realize this is going to be a long, painful recovery.

So yah, if this is the only way to go, then let’s hold hands and jump.

1. It was under a republican admin that the size of government greww: Patriot Act – Homeland Security, Prescription Drugs, Two major offensives at the same time we cut taxes.

Eventually one must grapple with some very real baiscs. If I increase government services, I must pay for them:

I can pay by cutting elsewhere to offset the growth
I can increase revenue via tax increases and service fee increases
I can do a combination of gthe above

But regardless of the choice, I must pay for government. For the past twelve years government has expanded as revenues for said government expansion have decreased.

The logical twists and turns I have to make in an attempt to justify tax cuts without cutting down the size of government as the size of government increases — makes one sound out of touch with reality. Ohh yeah, like a iberal.

One major problem with the authors argument. He suggests that the House republicans act like a loyal opposition in a parliamentary system. We do not have a parliamentary system. In our system, the opposition cannot just refuse, refuse, refuse – nothing will ever get done. This is a feature of our legislative system of checks and balances. The majority cannot implement their agenda without agreement from the minority. Therefore, our system only works if the minority and majority are willing to work together.

What the author suggests is obstruction that leads to stagnation and inaction, never mind that it is dressed up in a “loyal opposition” euphemism. Just take the ball and go home is what he is suggesting. Not helpful, and totally destructive to the future viability of our legislative system.

There is a difference between being for lower taxation, and being responsible for paying for items already purchased. And if you’re a true state’s rights advocate, including local and state taxes as part of the basis for your argument is incorrect. We should be arguing taxes and spending at the Federal level as the states and munincipalities get the government they elect, and can vote with their feet if they disagree. At the Federal level it comes down to wasteful spending, including Defense, and how various income is taxed. Taxation should not simply be a way to collect revenue, but also as an incentive to allocate production gains. Carried interest treatment is a perfect example of the tilt towards Capital that exists today. Raising the rates on that income stream, or more effectively defining it as true capital gains may not do a lot towards balancing the budget, but being against it just because one is against any tax rate increase simply continues to “prove” the perception that Republicans are the party of Wall Street. Optics matter. Raising rates but giving more than offsetting deductions for payroll can also influence business to share the production gains that have been going up rather than out for the last 30 years. Raising the minimum wage and getting rid of credits for lower income individuals that are simply a form of wage socialization can also effectively broaden the tax base. Simply being against something without thinking of the many ways tax policy can influence behavior in a positive manner is shortsighted in my opinion.

Act like the loyal opposition in a parliamentary system? Besides the obvious fact we don’t have a parliamentary system, does this not imply that the ruling party gets to implement its agenda without blockage from the minority?

Mr Buchanan should be more honest in his assessment of the fiscal records of the two parties. Republicans over the last 40 years have been the party of debt, bad faith budgeting and deficits don’t matter.

Anyone opposed to tax increases needs to propose a budget that spends only 15% of GDP, which is what federal taxes now bring in. Since no one has done it, I’m of the opinion that it can’t be done. That being the case, we need some tax increases.

The Republican party should grow a spine, dig in its heels and say not just “no”, but “HE!L NO !” to tax increases.

They’re going to get blamed for what happens anyway, so why not actually do something worthy of the heat they’ll get ? At least they can then say they did the principled thing, rather than the political thing.

Roland, well and simply put. I think that we can get to a budget that spends only what we take in — without taking much more in taxes than the feds do now — but it will require honesty about the sacrifices that everyone from the military to Medicaid recipients to Section 8 housing beneficiaries to the DEA etc. will have to make.

I would close hundreds of military bases abroad, end corporate welfare, and substantially increase the eligibility age for full Social Security and Medicare benefits, and then see whether tax increases are “necessary.”

I would also raise new revenues by imposing hefty excise taxes on activities and products that are currently prohibited by federal criminal laws, starting with adult marijuana purchases. Would rather have no federal interference at all, but better to be taxed by the feds than imprisoned for the same activities. These new federal excise tax revenues would be only a small part of closing our budget gap, but they would help. And might well turn out to be larger than some folks estimate.

Now, if the Republicans were to change the conversation, and forget about income tax and focus instead on moderate tariffs aimed at equalizing what is being charged on American goods in China as compared to Chinese goods in America, that’d be game-changing. Or, if they were to consider promoting the x tax (http://bit.ly/KFZ4u3). Unfortunately, the Republicans and Democrats are both too beholden to the handful of multinationals who profit from the status quo.

Mr Buchanan, I think you mistake the politics of the situation. The Rs in the House can pass a bill to extend the Bush tax cuts, and the Ds in the Senate can pass a bill to extend the Bush tax cuts on income up to $250,000. How then can the Rs vote against the D bill, which contains only provisions they voted for in their own bill? They can say that they want to extend the cut on income above $250,000 as well, but if they use that an excuse to vote against what they earlier voted for, it will sound like a demand for egg in their beer.

Their best ally, I think, will be Obama, who never saw a strong position he wasn’t ready to abandon.

If I thought for one minute that a continued tax cut would force a reduction in the size of gevernment _- absolutely they should hold the line. But neither of the last two admins that cut taxes, reduced the size of govenment — just the opposite.

NRF: With the aging of the population, I see no chance of getting the federal budget below about 21% of GDP. Assuming an economic growth rate of 3% (a stretch right now), we can safely run a deficit of 2% of GDP. That means we need taxes to come in at 19% of GDP, which is about average for the post-war period, but 4% above current levels.

“If Republicans walk away from tax negotiations with the White House, market investors, anticipating a sharp rise in tax rates on dividends, interest and capital gains next year, will start dumping stocks, bonds and investments to take advantage of the last year of lower taxes.” Well, I can tell you one thing they aren’t going to sell off is bonds. If anything, they are going to have to buy more bonds because that’s the only safe place they can put their money. Interest rates are going to stay low or go even lower than they are now (1% anybody?). Also, if the “rating agencies” downgrade America’s rating again, the markets are going to do what they did the last time and ignore them. How much of that can the “rating agencies” stand before all their customers realize they do not add value at all?

The US, like France, Germany, Canada, UK, and Denmark, does have a spending problem. It’s just not as bad as those countries — yet.

These countries do have higher taxes than us, have a major debt crisis, and are nearing economic collapse.

So the problem isn’t a lack of revenue. The problem is too much spending. For example look at the Bush years. After the 2001 and 2003 tax cuts government revenue actually increased. In 2003 government revenue was about $1.8 trillion. In 2006 the government took in almost $2.5 trillion in revenue. That is an increase in revenue. To put it in greater perspective, in the 8 years since the Bush tax cuts, revenue actually increased 21%; however, spending increased nearly 73%.

So after two tax cuts, AND an increase in revenue for the government, you tell me where the problem is. Is it too little revenue for the government? Or is it too much spending?

I would say too much spending is the problem. I don’t know about some of you, but if I take home $2,000 a week I would not spend more than what I take in. Common sense.

Once you account for inflation, Bush’s cuts resulted in a decrease in revenue growth. Yes, they gained more raw cash but it always gains ‘more cash’. That gain took a major hit, however, compared to the amount we would’ve gotten had the cuts didn’t go in.

It’s not much different than looking at raw unemployment numbers and saying “wow, we gained so many more jobs during the fall.”

And before anyone says “The economy improved” the only economic growth we had was a housing bubble. Wages still stagnated, middle class jobs were replaced with low wage service work, bankruptcies still exploded due to the 30 year abuse of credit.

The article also talks about the other time we cut taxes: Reagan.

Look, I LIKE low taxes. I’d love to find ways to lower them, as it’s less of a burden on everyone. I DON’T feel that jealousy that, admittedly, some to the left of me do have.

But tax cuts do exactly what a pay cut does to a home budget: you get less than you could have. Perpetuating incorrect information just leads opponents to use the hole to prove their case. In the case of this, it’s easy to say “since it doesn’t boost revenue or improve the economy we should raise taxes since there’s no penalty”.

We don’t keep taxes low to boost revenue. That’s silly by any standard. We also don’t keep it low to cut spending or shrink government, as I hope the past decades finally proved. We keep taxes low despite the damage, because taxes drain from individuals and we would rather individuals have the money they gain whenever possible.

Going from 70-32% top tax has hurt us….badly. However, I’m hopeful that we can maintain that cut anyway in the same way that I’d rather not have someone be forced to work 80 hours instead of 40 just to get by. If there’s no choice, then they MUST work, but if there’s a chance, let’s go for it.

So, anyone have a budget plan that does that based on the tax revenue we have now (since you shouldn’t base your household income on the raise you ‘plan’ to get)?

Patrick starts out with
““U.S. tax rates are too high for the world we must compete in. The tax burden–federal, state, local, together–is too heavy. We need to cut tax rates to free up our private and productive sector and pull this economy out of the ditch.”
This core conviction holds the party together.”

There are at least 22 other countries with higher taxes than we have in the US. And they are NOT 3rd world countries.

He proceeds on a false premise to make absurd statements about how the party will treat reasonable people. His belief appears to be that since we have been absurd in the past, with this incorrect core belief, so we must continue to be absurd, and that will surely win back our party’s power.

He has either mistated his ‘core conviction’ or he believes we are all idiots.

Calif is a good example of what will happen to the Republican Party , it will not be a major player on the political stage and the media at some point will finally accept reality and call the Republican Party what it has become a narrow regional Bible Belt party dominated by social conservatives.
This has nothing to do with liberal vs conservative rather the Republican Party today continues to fight the cultural wars while the rest of the country has long moved onto more important issues.
Republicans operating in D.C. have little choice now, as there political base continues along it narrow social conservative path electing , so they will pound the table and talk about principles but in reality they cannot upset there social conservative Southern Bible Belt base which pays the bills and accounts for there national electoral political strength. They will lose the battle and talk about winning the War.

U.S. tax rates are too high for the world we must compete in. The tax burden–federal, state, local, together–is too heavy. We need to cut tax rates to free up our private and productive sector and pull this economy out of the ditch. This core conviction holds the party together.

Really? That’s all you’ve got?

Hey, I’m all for comprehensive tax reform, but I was sure the “cut tax rates to free up our private and productive sector and pull this economy out of the ditch” went out with last week’s milk.

And who’s going to pay for the tax cuts, the wars and the prescription drug entitlements which the last Republican administration left us? Isn’t fiscal conservatism about paying for what you’ve spent?

What amazes me is how many “conservatives” believe it is in our best interests to simply give in to Obama’s petulant demands. I have a difficult time believing that the redistributionists will simply give up once this “milk the wealthy” ploy proves ridiculously insignificant as a method of addressing our deficit.

It should be quite obvious that the middle class will be their next target, as the bar used to define which group to demonize as “wealthy” is continuously lowered.

Were it my decision, I would stand firm and demand that, if we are to continue spending well beyond our means, all tax brackets be raised to their pre-2001 levels.

Pretty informative statistics. I had that page bookmarked a while ago.

Depends on which way you look at it. Do you think we should get entangled in everybody’s foreign affairs and enact government-run entitlement programs with having high taxes? Or do you believe that YOU should be entitled to your own money with less spending by the government? A conservative would simply choose the latter. That’s what I choose.

I think you’re looking at it in the perspective that the government has sole authority over us, and that we should worry that if there’s a deficit it’s important to raise taxes on working people. On the contrary I’d say it’s more important to cut spending than to raise taxes on ANY individual (I don’t care how rich or poor you are. We’re all Americans). What about from the perspective of the individual? Isn’t that what freedom is?

Going from $1.8 trillion to $2.5 trillion in 3 years is significant regardless of the inflation rate at the time with two tax cuts. It’s still a boost in revenue. Could more revenue have been added to the government without the cuts? Probably. But I don’t care about what the government “needs” for their little pet projects. They need to stop spending more than they take in.

I do agree that when Bush cut taxes he should NOT have increased domestic spending, nor should he have gotten us into Iraq. Iraq I think is part of the reason why our mission prolonged for so long in Afghanistan. That was stupid.

But anyways, I do believe that lower taxes can boost revenue to a degree. Is it always the case? No, not always. And you should never depend on it. But I do believe in the laffer curve to some extent. It makes sense to me.

You assume too much of me to say that I feel that if we spend too much that we should just tax more. You don’t balance a budget by just choosing to work 120 hours a week. You cut as much as possible. If you still can’t budget then up comes the hours. You don’t cut your hours then just assume the spending cuts will cover it: all that happens is either the CC comes out or the bill collectors start calling.

So you can almost say that my dreams move me to the Right and my realities move me to the left.

So I put things simply: If Congress can propose a budget that pays for the taxes that we have now, then so be it, keep the taxes low. If they can propose a budget that has the top 1% pay $500 in taxes and everyone else 0.. or, blah, everyone pays nothing, then so be it.

So far, the budgets I’ve seen that avoid tax increases does exactly what you say you should not do: Depend on the laffer curve.

The Curve has merit. It is nice to see happen. My boss saying that I will get a raise in 5 months has merit. It is nice to see happen.

I don’t base my budget on it. I base my budget on what I have now: once the raise comes in, THEN I remake my budget. The same goes for the curve. Instead, the Curve is being used as a miracle pill: we can cut taxes as much as we want, because it’ll always work out!

Base your budget on this years income. If you MUST predict, then use the current growth, pretend the Curve doesn’t exist, and base your prediction on THAT. If you can’t cut enough to balance it without completely breaking something, then it looks like mommy and daddy will be looking for second jobs.

Personally, I find it completely odd that we can’t at least drop spending to 2000 levels-after accounting for inflation-plus Afganistan and welfare (since going from 4% to 8% unemployment tends to mean more UI payments, and replacing middle wage jobs with low paying jobs tends to mean more people on welfare). From there we start the cuts. Once we stop cutting, we start the revenue. Then we keep working to keep cutting so that we don’t have to work as hard.

Making the rich pay out of spite won’t do it. Making the poor pay out of spite won’t either. Cuts that maintain a hefty debt won’t work and neither will tax increases that keep a hefty debt.

Much more elegant summary by Mr Kayser above, but yes, have the republicans stand on the principle that the increased spending and tax reductions, that started in earnest under their hero Reagan, and concomittant borrowing and debt, actually works, and is still the high ground in political debate. While doing that be sure to continue the arguement over how we could have won in Vietnam if we had just stayed the course. Double down on failed policy since republicans truelly have nothing to lose having already lost the future voters. Republicans one hope is the strategy they employed for the past 4 years, that is, make things worse by blocking any progressive political action for the country as a whole, and encourage the divisiveness and polarization of the haves and have nots under the guise of individual state rights. Like, if only making the white working class male angrier could equate to more votes, but hey, works in texas, the home of the ram, silverado, super duty, titan and tundra, where they can always pump enough oil and warehouse and transport chinese made goods through mexican ports while badmouthing China and those immigrants that made and still make texas. They can always buy the water they need to frac and there is plenty of room for jewish settlements or gated communities. If your sponsors are all about arms and oil, then their representatives have to be all about uncompromising conflict.

I am fine with the GOP stance on no additional ataxes, but in exchange I think they should agree to cut every piece of ridiculous unfunded big government crap they put in place between 2001 and 2006. Let’s get rid of:

1. DHS and all of the extra bureaucracy that comes with it
2. Part D, a trillion unfunded “gift” to their aging voter base
3. No Child Left Behind, in the spirit of Federalism, lets start taking the federal government out of public schools, we can start with Republican “Big Education”
4. Return to private airport screeners, get rid of TSA
5. Support a decriminalizing at the Federal level of Marijuana, this would eliminate a significant portion of the costs of the “Drug War”, and ease the burden of the cost of incarceration, plus it would give the states a freer hand in determining how to regulate it.

Unfortunately, we cannot get back either the blood or money wasted in Iraq or Afghanistan, but defunding Afghanistan and forcing a withdrawal date of 6-30-13 would be a good idea.

This would go a long way toward balancing the annual budget, while maintaining current tax rates.

Then, we can still allow the sequester cuts to go into effect. This level of cut should be completed voluntarily, and yes DoD should bear a large part of the burden. DoD represents probably the highest cost/lowest value spending item in the federal budget.

“If you believe higher tax rates or tax revenues would be like poisoning an already weak economy…”

Since we’re talking about higher taxes on the wealthy, which has little to no effect on the overall economy, then sure, if you start with a flawed premise, I would suspect you can formulate any number of ridiculous ideas.